Public Bill Committee

[Mr Gary Streeter in the Chair]

Gary Streeter: Welcome to our line-by-line consideration of the National Insurance Contributions Bill. Before we start, some brief explanation may be useful to those who are relatively new to Public Bill Committees, although I see a group of veterans in front of me.
The selection list for today’s sitting is available in the room. Only one new clause has been tabled and that has been grouped with the clause 1 stand part debate. Once we have debated the first group, we will proceed through the Bill clause by clause. Schedules will be debated after the clause that introduces them. A Member may speak more than once in a single debate. If no Members wish to speak to a clause or schedule, it can be agreed to formally.
I hope that explanation is helpful. We are now beginning the formal proceedings on the Bill; I remind Members that they may wish to consult the guide to the rules relating to the conduct of Members, particularly in relation to declarations of interest.

Clause 1  - Employment allowance for national insurance contributions

Question proposed, That the clause stand part of the Bill.

Gary Streeter: With this it will convenient to consider new clause 1—Report to Parliament —
‘(1) HMRC must prepare a bi-annual report on the employment allowance scheme which the Minister shall lay before Parliament.
(2) The bi-annual report must include information on HMRC’s assessment of the impact of the employment allowance on—
(a) the number of jobs created as a result of the employment allowance,
(b) the level of take-up of the employment allowance,
(c) the geographical locations of the businesses taking up the employment allowance,
(d) the number of charities and clubs taking up the employment allowance, and
(e) the overall cost to the Exchequer of the employment allowance and projected costs for future years.’.

Shabana Mahmood: It is a pleasure to serve under your chairmanship, Mr Streeter, in my first Bill Committee speaking from the Front Bench. Please forgive me if I trip up on procedure; I am sure that you will correct me and that the Committee will bear with me if necessary.
We had two useful evidence sittings. They helped to illuminate some of the issues raised by the Bill and gave some indication as to the thinking behind the new clause, which I will speak to a little later. Clause 1 is the principal clause of the Bill. It introduces the employment allowance, which was first discussed by the Chancellor in the Budget. It is worth up to £2,000 for all businesses, charities and sports clubs and the Opposition support it. We had an interesting debate on Second Reading on that point.

Julian Smith: I welcome the fact that the Opposition support the measure. Would the hon. Lady add that that support is unqualified?

Shabana Mahmood: Many of the issues that we raised in relation to a previous scheme introduced by the Government, which I will speak about at length in my remarks, are taken up in this employment allowance. We absolutely support the employment allowance. We have concerns about reviewing how it is working, which is the thinking behind new clause 1, but we think that the employment allowance is a good thing. In fact, we think that some change in the Government’s approach to national insurance contributions and businesses was long overdue, which leads me very nicely to the Government’s previous scheme.

Richard Fuller: Before the hon. Lady moves on and to pick up on her last comment—that is quite a change from Labour’s position in 2010, is it not? Labour went into the election supporting an increase in national insurance charges on employment. Why has there been this flip-flop from the Labour party?

Shabana Mahmood: I am pleased that the hon. Gentleman got in with his standard remark about the Labour party manifesto commitment. I knew that he would come in early with that point, and he certainly did not disappoint. He will not be surprised if this apple of a policy point is one that I refuse to bite.
We had a number of concerns about the conduct of the Government and their previous regional national insurance employer’s scheme. That is the point of the Bill. We have long called for changes to that regional three-year scheme. From the beginning we had concerns about aspects of it. We wanted the Government to change course very early on and we set out alternative ways for them to consider. We are pleased that they have finally moved. It is a shame that it took three years, with businesses continuing to struggle in the meantime, for us to get to this point.
The regional national insurance holiday scheme was a flagship policy of the Government’s first emergency Budget. It ran for three years, from September 2010 until September 2013, and applied only to new businesses created after 22 June 2010. Under that scheme, new businesses would not have to pay the first £5,000 in national insurance for each of their first 10 employees during the first year of business. Greater London, the south-east and the eastern region were all excluded from the scheme. The thinking was that it was explicitly designed to try to stimulate private sector growth in parts of the country where there was a suggested over-reliance on the public sector, and it was designed to stimulate jobs.
The Government believed that 400,000 businesses would benefit, equating to around 800,000 employees, at a total cost of about £940 million. In the end, the scheme helped 25,000 businesses—still, it is fair to say, a substantial number; no one would decry businesses that availed themselves of the assistance that the scheme provided. However, that number was very far off the 400,000 originally predicted—375,000 fewer than originally claimed. Of the £940 million set aside to pay for the scheme, only £60 million or so was ultimately paid out. That equates to about 6% of the total amount originally intended.
One of the first issues of debate around the original regional national insurance holiday scheme was its regionality element. It explicitly excluded three regions of the country. The Committee that considered the detail of that Bill had a huge amount of debate around that regionality element. The Member then speaking for the Opposition tabled a number of amendments trying to persuade the Minister—it was the same Minister, although the Opposition Front Bencher has changed. [Interruption.] They have all moved up, so I hope that bodes well for me, too. We tried to persuade the Minister to consider different ways of expanding the scheme so that, instead of being a regional scheme, it would become a national scheme.
Among the amendments considered were some focusing on constituencies that had particularly high rates of unemployment and others that would have dropped the regionality element altogether, making the scheme national in every way. The Government stuck to their regional plan and the low take-up is an indictment of the scheme’s regionality element, which was never going to work. It certainly did not help with one of the purposes of the scheme, which was to try to remedy some of the regional imbalances that we see in our economy.
It is also telling that, of the analysis that the Government published on the new employment allowance, 40% of the expected number of employers who will now not pay any national insurance contributions under the new employment allowance are based in regions that were previously excluded. That shows that the balance that the Government achieved with the original scheme was wholly wrong. They should have listened to the criticism around regionality and dropped that condition at the earliest opportunity.
The second issue debated at length in the previous Bill Committee considering the regional scheme related to including charities. Again, that has been included and brought within the scope of the employment allowance. That is a welcome step, but once again I put to the Minister that it would have been better if we had not allowed that scheme to last for the full three years. It was clear that it was failing almost from the off and the Government should have changed course a lot sooner than they did.
The previous policy had the specific intention of trying to stimulate private sector job growth and encourage new businesses to take on new staff. It is fair to say that it is hoped that the employment allowance will have the same impact, although that is not the explicit intention. The Minister has not put any figures behind what kinds of impact he hopes will be achieved, although he accepts that the allowance is a good thing. From the perspective of businesses, it is very welcome; the Federation of Small Businesses in particular is very happy and now has a clear campaign point for every Budget from now on, to try to push for the £2,000 limit to be increased. I am sure that we will all have to respond to those campaigns at some point.
There is not the same kind of explicit intention behind the measurement of the policy. That is an important point because it involves large expenditure by the Exchequer and a tax give-away to businesses. However, the Exchequer, and all of us parliamentarians, hope that it will stimulate particular effects in the economy. Those effects may relate to job creation and to slightly higher wages, given that employers would no longer have to pay the first £2,000 of their national insurance bill. The policy may also stimulate some addition investment by businesses. We would all agree that if we can get small and medium-sized businesses in particular to invest a little more in research and innovation, which may assist them with their business practices, that would be a good thing.
There are a number of things that we hope this employment allowance would achieve, but there is no way at present, unless the Minister disabuses me, of measuring how the policy is getting on. Given the experience of the regional national insurance holiday scheme, and all the issues associated with it, it is right and proper that we consider the thrust of new clause 1 and the idea of a post-implementation review of the employment allowance.
In the oral evidence session, both the Institute for Fiscal Studies and the Federation of Small Businesses indicated support for a post-implementation review of the employment allowance. I hope that the Minister will have taken that on board.

David Wright: Did my hon. Friend also note from the evidence sessions that the Minister himself, good man that he is, said that organisations would be lobbying in future for an extension of the policy over time and particularly that groups such as the FSB would be lobbying for higher levels of support through the scheme? If that is true, we surely need to see whether the initial implementation is successful. I suggest that a review process would be welcome.

Shabana Mahmood: My hon. Friend makes an important point, and I agree with it.

Richard Fuller: We have just heard something interesting. Given that we are already aware of the Labour party’s flip-flop on national insurance since the last election, employers will be worried about whether new clause 1 is a Trojan horse and whether the party is going to change its mind again. Can the hon. Lady advise the Committee whether she can commit now that the Labour party will not reverse this change at the next election?

Shabana Mahmood: The hon. Gentleman would not expect me to make any commitments ahead of the next general election, but let me make clear the intention of the post-implementation review. It is not designed to say that the scheme is failing; I was going to come to the point about effective communication and effective advertisement of the scheme to businesses.
Low take-up was a huge problem with the regional scheme, and the new clause looks particularly at take-up and where it is occurring. That is important because problems with take-up ought to be highlighted to the Government at the earliest opportunity, so that they can remedy them and all businesses can avail themselves of the employment allowance.

Nicholas Dakin: It is a pleasure to serve under your chairmanship, Mr Streeter.
My hon. Friend is setting out her case very well. When the Minister gave evidence, he was positive about a review, but concerned about the formality and bureaucracy that that might involve. Can my hon. Friend give assurances that a review would tick the right boxes without becoming over-bureaucratic?

Shabana Mahmood: My hon. Friend is right. It should not be beyond the wit of Government to create a post-implementation review that is not over-bureaucratic, but at least ensures that some of the problems with the previous scheme are not experienced when the new employment allowance is rolled out.

Julian Smith: Does the hon. Lady agree that we have to reduce the burden of red tape and box-ticking, both for business and with what we do in the House? There will be plenty of information about the success of the scheme, and that will be in the public domain anyway, so we do not need to overlay that with another reporting structure that could lead only to more work and more tick boxes.

Shabana Mahmood: I note the hon. Gentleman’s point about trying not to overload people with more work just for the sake of a box-ticking exercise. However, the Minister was clear in his oral evidence that an assessment process would take place in HMRC. We had an interesting exchange about talking of things being constantly under review, but he was clear that there would be an assessment and that parliamentarians would play a part in that assessment. No doubt MPs who think that businesses in their constituency are not taking up the employment allowance will be vociferous in making sure that the Government hear that point and do something about it.
My point is that if the assessment is occurring in HMRC anyway, in some shape or form, it would not be improper—in fact, I would say it would be very proper—for parliamentarians to see what it looks like. The new clause would ensure that the direct problems with the regional scheme could not slip off the radar. I am sure that the Federation of Small Businesses will be very alive to the point about effective communication and will want to ensure that take-up is as high as possible. However, I do not think we can subcontract to the FSB the Government’s duty to ensure that they communicate about the policy effectively.

Julian Smith: On communication, will the hon. Lady confirm that she will be asking all Labour MPs to promote through the channels that they have available, such as their websites, this excellent Government scheme?

Shabana Mahmood: I would expect all Members of Parliament from all parties to ensure that businesses are aware of the different allowances that are available to them. All responsible Members of Parliament do what they can to help businesses in their constituencies, and ensuring that people are aware of the employment allowance will be one way of doing that. However, that does not take away the Government’s responsibility for ensuring that they do their bit.

David Wright: Perhaps this is something that could be discussed on small business Saturday. It is clear that my hon. Friend the Member for Streatham (Mr Umunna) has been the pioneer of that initiative in the UK and that the Prime Minister is playing catch-up. Labour Members are proud to be supporting the initiative, so perhaps we can discuss the allowance with businesses in the new few weeks.

Shabana Mahmood: My hon. Friend takes an excellent opportunity to remind all hon. Members about the brilliant proposal that is small business Saturday. Of course, I was formerly a member of the team of my hon. Friend the Member for Streatham, so I was heavily involved in ensuring that we have a small business Saturday in this country to follow on from the excellent experiences of that programme in the United States. I know that many Members from both sides of the House are doing their bit for small business Saturday, and I hope that all members of the Committee will be doing so as well. I put on record that I commend my hon. Friend the Member for Streatham for taking the lead on that issue and recognising that it is a really positive way of putting the focus on small business. We should take pride in our small businesses and recognise the huge amount of work they do for the national economy.
Let me deal with the detail of new clause 1. I will return to the provision about job numbers later, as I appreciate that some of the oral evidence suggested that it might be difficult to work out the number of jobs created. The new clause suggests that other points to address in a report to Parliament would be
“the level of take-up of the employment allowance…the geographical locations of the businesses taking up the employment allowance…the number of charities and clubs taking up the…allowance, and…the overall cost to the Exchequer of the…allowance and projected costs for future years.”
Dealing with those points would require no more than collating data the Government already have. A report could then be presented to Parliament so that hon. Members could debate it.

Nicholas Dakin: My hon. Friend makes a perfectly sensible request, because those points might be covered by questions that will be asked by MPs and answered by the Department anyway. Does she agree that having a formal report to Parliament would secure the initiative into the future, because it would give the opportunity to take stock, celebrate and think about what happens next?

Shabana Mahmood: My hon. Friend is right that such a report would help to cement the employment allowance. It would also help parliamentarians to ensure that we do our bit to make the employment allowance a success.

Nick de Bois: I do not have a problem with several of the hon. Lady’s suggestions, but I am worried about trying to identify the number of jobs that are created as a result of the employment allowance. Like many hon. Members, I have employed people, so I know that the decision to employ someone is complex and that it can be taken for a multitude of reasons. Trying to identify what one specific measure has done to create jobs would be a bureaucratic and fruitless process, because it is not that simple.

Shabana Mahmood: I will come on to the specific point about jobs. I accept that that aspect of the review process would not be as linear as some of the others proposed in the new clause.

Sheila Gilmore: Notwithstanding the previous intervention, such a policy will be introduced with certain intentions, and in this case one of them is clearly to increase employment. Surely it is important to attempt to measure the success of that intention.

Shabana Mahmood: I agree with my hon. Friend. That was why I included a provision about jobs in the new clause, and I shall explain why that is important in a moment.
The extent of take-up is directly connected with the question of the number of charities and clubs that will avail themselves of the employment allowance. The policy rightly focuses on business, but I worry that it will be more difficult for charities and especially small sports clubs to find out about it. They may not go on to the HMRC website each day, although they are clearly missing out if they do not, and it would not be their normal practice to check other Government communications to find out whether anything is happening that affects them. Ensuring that the communication of the policy filters down to charities and sports clubs will be an important factor in determining the success of the allowance.
During our evidence sessions, I pressed Mr Cherry from the Federation of Small Businesses about what his organisation meant by effective communication. It clearly thought that that took a number of different forms, such as a letter from the Government to businesses, or information on the HMRC website. However, Mr Cherry was somewhat disparaging of the HMRC website. He did not think it was easy to use and I have not found it the easiest website to find one’s way around. Has the Minister considered Mr Cherry’s remarks about the ease of using the HMRC website? Are there any plans to open it up a bit more? Government Members focused on how the Government communicate policies through a digital forum to help businesses, so I hope that the measure will be part of the Government’s constant review of their communication strategies.
It will be somewhat easier to get the message out to business than it will to charities and sports clubs. Can the Minister tell us about any specific ways in which the Government hope to assist charities and sports clubs to know what the allowance is and how it might help them? If we were able to collect the relevant information in a formal report, it would help Members to ensure that they play their part. If they knew of charities and clubs in their constituencies that were not taking up the allowance, the report would give them an opportunity to ensure that they could get the message out.
Finally, let me turn to how we work out whether the policy has had an impact on job creation. I accept at the outset that the process is not linear, as I said to the hon. Member for Enfield North a moment ago. The picture is much more complex than employers simply saying, “We now have an allowance, so I will create another job.” However, the clear intention of the policy is to stimulate the economy, and one way of doing that is to increase job numbers. Alternatively, businesses that take up the allowance might increase staff wages or, as I said earlier, make additional investment in new machines or equipment, or even small-scale research and development to improve their internal processes.

Ian Swales: In a sense, it is right that new clause 1 focuses on jobs, but according to the FSB data we heard about in our evidence sessions, only 28% of firms say that they will increase jobs. In fact, a slightly higher percentage say that they will increase wages. Does the hon. Lady believe that her monitoring proposals, even if they were acceptable, are sufficiently comprehensive? Even though I do not believe that the Bill should provide for such monitoring, I still wonder why the proposal is not comprehensive.

Shabana Mahmood: The hon. Gentleman is right to raise the FSB survey, which I was about to come on to. I accept that it is not possible for the Government to make a linear measurement on a direct link, but it is possible to ascertain the intentions of businesses, as the Federation of Small Businesses has done. Its survey has produced statistics that will help parliamentarians to assess the economic impact of the policy. It would be good to extend that survey process so that we find out in six months or a year whether businesses have undertaken the measures that they thought they would when the employment allowance was introduced. That would give parliamentarians important information with which we could judge whether the policy represented money well spent, and whether it was having the stimulating effect on the economy for which we had hoped.
In oral evidence, Mr Cherry implied that the FSB will carry out further surveys following the introduction of the allowance. I envisage the Government either working with the FSB on such surveys, or conducting a similar exercise. There would need to be an element of extrapolation following such surveys, but at least we would get enough information to judge whether the policy is having the impact we want.
Many firms will use the employment allowance to bolster their profits. There is nothing wrong with that in and of itself, but we would all hope that businesses also use some of the allowance, if not all of it, to do things that will help the economy, particularly regarding jobs and wages. It is important that we are able to take stock of any such action by reviewing the policy.
I hope that hon. Members understand that a post-implementation review is intended not to be over-bureaucratic exercise, but to provide helpful information. The suggestion should also be considered in the context of the previous regional scheme, which faced significant difficulties. Although all those difficulties were identified at an early stage through written and oral questions to the Minister, the scheme was still allowed to run for its full three years—it was not brought to an early end so that the Government could establish a new course. Given what happened before, it is entirely proper that we formally review the policy at a relatively early stage to ensure it is doing what we all want it to do.
I know that the Minister said in oral evidence that the new scheme will be much simpler than the previous one and that many of the problems that afflicted that previous scheme have been remedied. We recognise that the new scheme is much more straightforward, which could be described as a good thing in and of itself. However, a post-implementation review would give us the opportunity to assess the scheme’s impact on the economy, so I hope that the Minister will take that on board.

Richard Fuller: It is a pleasure to serve under your chairmanship, Mr Streeter, and it is also a pleasure to follow the shadow Minister in speaking to clause 1 and new clause 1.
The hon. Lady did a very good job with a very bad argument in trying to persuade us about new clause 1. When I read it, I initially thought, “Is this not really the responsibility of the Treasury Committee?” We would normally expect a Select Committee to review such a policy on behalf of the legislature. I am not sure whether the Opposition intend somehow to usurp the Treasury Committee’s authority by trying to direct what it should or should not do.
As I moved beyond that general question about the new clause, however, I looked at some of the details. The hon. Lady initially skipped over subsection (2)(a) and spoke to subsection (2)(b) and the other presumed benefits of the new clause. She made a number of comments about how complicated it would be to take up the allowance and how important the management of that process would be. I am not sure how complicated it will be for businesses to claim the employment allowance. Does even the Minister know whether the process will be so complicated for businesses that we need a special report to tell them how to do it?

David Gauke: I do not want to pre-empt the remarks that I will make on clause 1, but I can reassure my hon. Friend and the Committee that the process will be very simple. As we heard when we were taking evidence, for the vast majority of employers, it will simply be a case of clicking on a box as they undertake their normal payroll process and the deduction for the employment allowance will then be made for them.

Richard Fuller: I am extremely grateful for that intervention. The process really is just a matter of a company ticking a box in the payroll process, yet the position of the Labour party is that we need an annual review to determine whether our businesses are smart enough to do that. That is not an especially strong reason for spending more taxpayers’ money on creating a report.

Anne-Marie Morris: Does my hon. Friend agree that an easy solution, which would certainly avoid any form of review, would simply be that, when the screen comes up, there is a note saying, “Do you know about this new allowance?”? That would not require a review or any further work. It would be automatic and built into the system, and it would remind the individual that the allowance is available.

Richard Fuller: My hon. Friend makes an interesting point, but I think we are arguing at the 99.99th percentile of people’s ability to fill something in. My concern is that Labour Members seem to think that that process is too complicated and that they want to waste taxpayers’ money on working out whether people can tick a box.

Shabana Mahmood: I know that the hon. Gentleman is not doing this wilfully, but he misunderstands the point of the review. It is not about employers clicking a button on a website; it is about looking at the overall national take-up of the scheme, the areas in which the scheme is being taken up and the cold spots where it is not being taken up sufficiently. A review would give us an opportunity to assess that formally. The Minister said in oral evidence that the assessment would be done by HMRC anyway; our proposal would simply ensure that the information was brought before Parliament.

Richard Fuller: The hon. Lady has not persuaded me one iota with that intervention. I am simply taking the new clause as I read it. Subsection (2)(b) states that the report
“must include information on HMRC’s assessment of the impact of the employment allowance on…the level of take-up of the employment allowance”.
As we have heard from the Minister, take-up is a straightforward matter. Paragraph (c) simply states that the report must examine whether people in different parts of the country have taken it up. There is no prima facie reason why—

Chris Evans: Will the hon. Gentleman give way?

Richard Fuller: I will give way in a second. I know that the hon. Gentleman has just walked in, and I am keen to hear from him.

Chris Evans: I have been here all morning.

Richard Fuller: I am terribly sorry. I withdraw that remark completely. Allow me to make my point and then I will, with great humility, give way. If paragraph (b) fails the simplicity test, there is no reason why paragraph (c) should be required at all.

Chris Evans: I am grateful to the hon. Gentleman for giving way. The point behind the new clause is the fact that take-up of the national insurance holiday was low in parts of the country such as Wales, Scotland and Northern Ireland, and we worry that the same might be the case for the employment allowance. How does he suggest that we monitor the scheme to ensure that we do not see a repeat of the situation with the national insurance holiday?

Richard Fuller: I would allow the Treasury Committee to do its job. I do not think that the previous Labour Government were particular fans of having post-implementation reviews of all their policies. The employment allowance is a welcome policy, and it does not require such a review either. I do not see any soundness in the Labour party’s pushing of the new clause.
The more revealing aspect of the debate has been the fact that the hon. Member for Birmingham, Ladywood and other Labour Members made no commitment to continuing the employment allowance should they win the general election in 2015. The previous Labour Government were very keen to increase national insurance contributions. When they were in office, the Labour party saw national insurance as something it could increase and increase. It taxed jobs at every opportunity, increasing national insurance five times as quickly as it did with income tax. The Labour party’s lack of commitment to continuing with this welcome measure to support employment and the growth of wages and jobs will be viewed with alarm.

Sheila Gilmore: Many parties said things in their 2010 manifestos on which they quickly changed their minds. I seem to remember that certain parties promised that there would be no increase in VAT.

Richard Fuller: My point was about not what parties did after they made promises, but whether the Labour party would commit today to a measure that has been welcomed by hon. Members on both sides of the House. The hon. Member for Birmingham, Ladywood said that she hoped Labour Members would promote the allowance on their websites, but the Labour party has made no promise to continue with the policy should they ever be in office.

Shabana Mahmood: We have offered unequivocal, unqualified support for the measure. The only amendment that we have tabled to the Bill is this new clause proposing a review. How much more vocal can we be in our support for the employment allowance? When the hon. Gentleman intervened during my speech, he tried to tempt me into making a manifesto commitment. I am sure that all businesses that might be listening will recognise that it is sensible that we set out our proposals on all our policies in our manifesto nearer the election. However, I am also sure that they will have noted our recent policy announcements on business rates and energy price freezes, which show a wider support for business.

Richard Fuller: I will take the hon. Lady at her word about that. We shall wait to see the Labour party’s commitment to that in the next election. Until then, we will have a lot of doubt about what its post-2015 position on the matter will be.
Let me move on to the substantive part of my contribution on new clause 1 and clause 1. In the evidence sessions, I wanted to understand the impact on not necessarily the quantity of labour—how much the change will increase employment—but the wages of people in employment. As we heard from the hon. Member for Redcar, the review by the Federation of Small Businesses showed that businesses wanted to use the allowance to increase wages or increase employment in broadly similar proportions.

Chris Evans: I welcomed the hon. Gentleman’s question to the FSB about a living wage. What is his view on the FSB’s opposition to a living wage, and how does he see the measure fitting in with promoting a living wage among small and medium-sized businesses, as well as large ones?

Gary Streeter: Order. Before that question is answered, it may be helpful if I point out that the living wage is not really an aspect of this clause. Everyone has been extremely well-behaved up to now—[ Interruption. ] I know it has been only half an hour, but let us stay focused on the clause and new clause 1.

Richard Fuller: I am grateful for that direction, Mr Streeter, but there is an interesting deeper point about how the state intervenes in our labour markets through taxation on employment through national insurance and through the provision of working tax credits. The employment allowance is an innovative first strike in considering how state intervention in labour markets can be altered in future, so with your indulgence, Mr Streeter, I would like to refer to the living wage, because I think that it is pertinent to clause stand part.
If I can encourage you further on that point, Mr Streeter, back in 2010, Mr John Philpott of the Chartered Institute of Personnel and Development, when discussing an increase in employer’s national insurance contributions, which we debated a little while ago, said that, in his view, it was not a tax on jobs. He said:
“This is far too simplistic. Employers will shift the tax onto employees by way of lower pay increases. The tax will therefore eventually have a neutral effect on the cost of employment and should not be harmful to jobs”.
Experts in the area see that changing national insurance contributions has an impact on lowering or increasing wage rates, and that plays directly into the issue of changes in wage rates, two examples in relation to which I cited on Second Reading. One was of a married couple with two children, with one partner not in work. I put them in a reasonably priced house in Bedford with band B council tax. If the wage earner in that household is on the minimum wage, their headline pay will be £13,125 a year. If they are on the living wage, their headline pay will be £15,912, which is a headline increase in income of 21%. That all sounds very nice, but when one takes into account their tax and national insurance contributions, and changes to their tax credits, housing benefits and council tax benefit, the situation looks different. The net income for someone on the minimum wage of £13,125 in the circumstances that I outlined is £29,308. For someone on the living wage, it is £29,419. For the individual—I am happy to pass my calculations to the Treasury so that my maths can be corrected—the change in their take-home pay by moving to the living wage is just £112 a year, which is virtually 0%. For the employer, however, the labour costs increase by 23%, due to an increase in the salary paid and the increase in the employer’s national insurance contributions, from £750 to £1,134. For the Government, income tax increases and the employee’s national insurance increase. They pay less in tax credits, the employer’s national insurance contributions increase, and the amount spent on housing benefit and council tax support decreases. For that one individual moving to the living wage, the Government would contribute £3,059 a year less to their employment.
 Sheila Gilmore  rose—

Richard Fuller: I will take an intervention but, if I may, I have more to say about this before coming directly back to the main point, because I know that I am straining your patience, Mr Streeter.

Gary Streeter: Order. It is important that the hon. Gentleman links his comments to clause 1 or new clause 1. I think that he is doing that, but he should reinforce the point whenever he can.

Richard Fuller: I give way to the hon. Member for Edinburgh East.

Sheila Gilmore: It is obviously important to look at the overall effect, but I understood that Conservative Members—if not the hon. Gentleman, certainly some of his colleagues—thought that reducing the amount spent on tax credits, for example, was a good thing, and that tax credits could be seen as subsidising very low wages.

Richard Fuller: If I may, I shall respond in accordance with your wish, Mr Streeter, that I tie this to national insurance.
 Nic Dakin  rose—

Richard Fuller: I will take another intervention, but then I must get back to the point.

Nicholas Dakin: The hon. Gentleman’s points are pertinent to the clause, because they refer to how the Government use their money to incentivise positive changes in the employment market. He demonstrates that that may well be happening here, but we need to know its impact. His contribution today is helpful.

Richard Fuller: I am grateful for that intervention, but I must point out that the Government do not have money; people and businesses have money and they contribute it to the Government through taxes. That is perhaps an important philosophical difference between Conservative and Labour Members. I appreciate, however, the hon. Gentleman’s broader point.
My point refers directly to the employer’s allowance, because if the Government want to achieve what all hon. Members want, which is increasing employment and people being more productive and having higher wages, we must look at how we can reduce the significant state intervention in labour markets in the low-wage part of the economy. Our main weapon is the employer’s national insurance contribution. In a shift from the minimum wage to the living wage, the benefit in take-home pay is not to the employee but to the Exchequer and the cost is to the employer. My strong support for the employment allowance that the Government propose today is not only due to it being an incredibly simple and well-timed support for small businesses, but because it has started to shine a light on how this Government and the next, hopefully Conservative, Government can look at creative ways to encourage employers, through further changes in the employment allowance, to achieve a real increase in take-home pay. People’s wages should be paid by the employer, rather than employers being partially paid by the state to employ such people.

Julian Smith: Does my hon. Friend agree that this is an appropriate point to put it on the record that the Minister worked exceptionally hard over the months prior to the policy’s announcement and that his personal effort on the change, which we all welcome, must be complimented?

Richard Fuller: I am happy to associate myself with my hon. Friend’s endorsement and support for the Minister’s efforts.
The initiative in the clause is exceptionally important to encouraging employment. It is another stage in the effort by this Government to make work pay. The previous Government did a lot to undermine the work ethic and the way in which our labour markets worked effectively, so this is a welcome step forward. I thoroughly and fully support the clause.

Nicholas Dakin: I rise to support new clause 1 in the name of my hon. Friend the Member for Birmingham, Ladywood, which would help to cement the measure in the clause and to protect it.
My impression from listening to evidence earlier in the week was that the general view of all the witnesses was that the employment allowance is a good thing and that it will have a good effect on the jobs market in a variety of ways, benefiting employers with a feel-good factor. People were more constrained when they came to how to measure the impact: how do we demonstrate whether what we believe to be a good thing is actually having the anticipated effect?
My perspective comes from a lifetime in post-16 education and from seeing the impact of the education maintenance allowance, which was a good thing. Without doubt, during my time, it was the one thing that transformed young people staying on and their performance in education. However, when the coalition Government came to power, they decided that in spite of the general view that EMA was a good thing, it was not performing as they might wish. They came up with the view that much of the finance spent on EMA was what they described as “dead-weight”—in other words, the results would have happened anyway.
According to Government estimates, only about 35% of the money expended on EMA impacted on the changed behaviour—at the time, the Institute for Fiscal Studies analysis took a different view, but that did not change the facts of what the Government were saying. The Government, in their wisdom, therefore withdrew that support and made significant changes. Whatever the rights or wrongs of that, the reason why I use EMA as an example is to illustrate the effect that an initiative by a Government at a particular time can have, whether it causes a permanent or temporary change, on something that is good for a particular community.
In this case, the community we are discussing is business, especially small business. It is pertinent that we are debating the measure in the run-up to small business Saturday on 7 December. It was good to hear the Prime Minister celebrate that event and encourage us all—we have added encouragement this morning—to get involved in that, and I am sure we will. None the less, unless we can demonstrate in future that something is having an impact and causing change, it will be vulnerable to having a Government—of whatever persuasion at a particular time—say that it has got an element of dead-weight cost and is therefore not worthy of continuance or, indeed, of extending, because as we heard earlier, the debate will be whether £2,000 is sufficient, or whether moving up the gas as it were, to £3,000 or £4,000, would have another impact.
The lesson to me from the way in which this Government behaved on EMA is that all the knowledge out there is irrelevant unless the people in this place have the evidence at their fingertips to assure them that they wish to continue with the investment of a significant amount of taxpayers’ money. That is why my hon. Friend’s new clause is helpful in securing the future of the initiative, because it would ensure proper reporting to Parliament of its impact. Such reporting would secure its future, because if, as we believe, it is a good thing, we would be able to see it reflected in the world out there. Our witnesses included the Exchequer Secretary, who said candidly that this would need to be kept under review, as everything needs to be, but he was anxious about formalising it. We will have the opportunity to hear more from him about why this is a problem. Most of new clause 1 is typical of the sort of written parliamentary questions which might be submitted, to which the Exchequer Secretary, in his good offices, would respond anyway. The new clause merely brings together in a formalised way a simple process that assists the measure and secures and protects it into the future.
The only issue that anybody in the debate so far has had difficulty with is the mechanism for assessing the number of jobs created as a result of the employment allowance. Nobody has raised any concerns about any of the other issues. In the exchange around that, it was clear that the good minds that support the processes in this place could well come up with a mechanism to make proper estimates, which would help Parliament and the taxpayers and public whom we serve.
Going back to the evidence, I asked Mr Cherry:
“How might we determine whether, after a period of time, the policy represents good value for money for the taxpayer?”
He replied that it was “incredibly difficult”, but thought that it was worthy of consideration. Mr Adam added:
“Clearly we would expect the policy to do something to increase employment and wages.”
There is a recognition there. At a later point, Mr Cherry made it clear that:
“As a colleague said, a review in a couple of years’ time might be useful”.––[Official Report, National Insurance Contributions Public Bill Committee, 19 November 2013; c. 12-15, Q22 and 32.]
He was pretty clear about his support for a review that would assist this policy and help to secure it in our national system of incentives. The hon. Member for Bedford helpfully spelled out the way we can use carrots as well as sticks to stimulate, and this might well be a better way of getting good value for the taxpayer, for business and for the communities we serve. A review not only secures the policy, but also allows us to determine how to move it forward, which is one of the issues that the witnesses were interested in. They wanted to build on what they thought would be a good thing.
That is all I wish to say on this new clause. It is helpful and, as this Bill goes forward, there is plenty of time for the Government to come back and engage with the points being made, so that we can stride forward consensually with a measure that everybody sees as positive for small businesses in the communities that we serve.

Sheila Gilmore: It is a pleasure to serve under your chairmanship, Mr Streeter. Everyone pays lip service to policy making by evidence, yet at times it appears that we are not prepared to put the effort into creating that evidence and therefore deciding whether policies have worked or not. The hon. Member for Bedford suggested that this is a role for Select Committees. I certainly think that there is a role for Select Committees in evaluating policies, and we should probably be spending a lot more time doing that in Select Committees. However, it is also incumbent on the Government—on any Government —to gather the information, evaluate it and provide an opportunity for it to be properly debated and discussed.
I am not convinced that it is enough to say “Well, it has been gathered anyway, it’s there in the Treasury and therefore we, the Minister, the Treasury mandarins or whoever, know it and will use it when the time comes without giving the opportunity to the wider political body to see that.” It is not too difficult to do what we ask if the information is being gathered anyway. This is important because things are being said about this measure. In the evidence sessions and on Second Reading, it was said that some people see this as a first step towards making further changes in employers’ national insurance contributions. The case for that would have to be made when the time came, but it has to be made on evidence: on whether, as a measure, this does what everybody hopes for. It may do more, in which case there may well be an argument for looking at further changes, or it may do less.
There is a tendency on the part of the Government, and perhaps of previous Governments as well, to think that it is not necessary to wait for the results of research. For example, we saw that with the future jobs fund. It was declared a failure and abolished in advance of the research, which said something very different. There is a danger that we do not pay much attention to commissioned research.
When making major changes to national insurance contributions, we look very much through the prism of employment and, as has been suggested, NICs might be a lever for increasing earnings. Most people accept that there is a problem with earnings falling behind in recent years, and so if something of this sort worked to increase earnings, that could not be seen as a bad thing. That is why new clause 1(2)(e) is important, because it refers to
“the overall cost to the Exchequer of the employment allowance and projected costs for future years”.
Rightly or wrongly, the way that we have set up national insurance is that the contributions are specifically designed to help pay out contributory benefits. It is not funded, it is not put in a big pot and saved up somewhere, but year on year that money is earmarked and allocated for paying out those payments.
On top of that, there is the allocation made by the previous Government—and I understand that it is still retained—that some part of national insurance receipts go to the national health service. It is quite important, therefore, to the Government’s spending and to the things that people hold dear that the money is there to pay for retirement pensions and other contributory benefits. If the money was not there to pay for them, it would have to come from some other part of the tax pot.
There is a respectful argument that says we should look at the whole of that. There are pros and cons to doing that, and some strong cons to doing away with the concept of a separate national insurance contribution or, in effect, a national insurance tax, and the way it is used. It would be foolish to rush down the road of getting rid of that. It is self-evident that most Governments come to that conclusion in the end. A couple of Budgets ago, the Chancellor suggested he wanted to go down this road. But he has gone a bit silent on that. It is dangerous not to look at that wider picture as well and decide how we want to pay for these things, so it would be extremely useful to gather the evidence together and prepare a report that is put before the House and can be debated and used by a Select Committee.

Nick de Bois: Bearing in my mind what my hon. Friend the Member for Bedford said about Select Committees doing their job, how many post-legislative reports were required by Bills during the 13 years of Labour Government?

Sheila Gilmore: I am afraid I cannot answer that question. We always get to the point in these debates where we are somehow static and never allowed to change our minds or even our practices. The hon. Member for Bedford rightly pointed out that the Government have no money of their own, only what they collect. Perhaps he should tell the Deputy Prime Minister that, as there is a reference in the transcript of his radio programme to the possibility of removing green levies from people’s fuel bills and passing them to the Government to pay. Nevertheless, it shows that what we do about the taxes that are collected, where they are collected from and what they are used for becomes so important that changes have to be looked at very carefully. Otherwise we could simply not know what is happening or the impact of our actions and that is not sensible.
It is easier nowadays to collect, store and use data than it ever was. Some of the arguments that were previously advanced about that being difficult no longer apply. However much people want to suggest that it will be done anyway so it is fine, I hope that it is put in the Bill, given that it is quite a major departure from the courses that both this and previous Governments have followed. It would give us an opportunity to come back here in two, three or four years’ time—when hopefully we will be sitting on the other side of the room—to evaluate the effectiveness of the Bill.

David Gauke: It is a great pleasure to serve under your chairmanship, Mr Streeter. I welcome all members of the Committee to this stage of scrutiny. I particularly welcome the hon. Member for Birmingham, Ladywood to her first Public Bill Committee in her current role, no doubt before she moves on to greater things, if anyone can believe that there is anything greater than scrutinising legislation on tax and national insurance contributions. I note that she continues the long-standing tradition of shadow Treasury Ministers of calling for a review. She will be aware that that was a regular feature of Finance Bills. It does not apply just to this Parliament but dates back beyond it. I speak as a former shadow Treasury Minister. The balance of amendments calling for reviews versus other substantive changes appears to be shifting.
In my experience, Public Bill Committees do not tend to be quite so universal in their support of a policy as we have seen today. I am delighted to hear the widespread support for the employment allowance. Clause 1 is the guts of the Bill: the section that relates to the employment allowance. It appears to have the support of all members of the Committee, for which I am grateful. Later, I will turn to the history of employers national insurance contributions and question the degree of consistency from certain parts of the Committee in supporting an employment allowance that will reduce the burden on employers, with the result being passed on in greater wages: either higher wages for existing employees or more people being employed. I believe that that will be a beneficial step.
The clause provides that employers will qualify for an employment allowance for a tax year if, in that year, they are liable to pay secondary class 1 national insurance contributions on the earnings of their employees. It sets the allowance for a tax year at £2,000 or, if less, an amount equal to the employer’s secondary class 1 liabilities, provided that those are not excluded liabilities.
The clause is subject to other measures, in particular clause 2, which lists the exceptions to entitlement; clause 3, which contains the connected persons rule; and schedule 1, which sets out the rules that decide whether employers are connected.
The clause also introduces clauses 2, 3 and 4, provides that references in the Bill to the employment allowance are to clauses 2 to 4 and schedule 1, and that terms used in the employment allowance legislation also used in part 1 of the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992, such as the term “tax year”, have the same meanings as in those Acts.
New clause 1, which has been tabled by the hon. Member for Birmingham, Ladywood, would require the Government to publish a biannual report including HMRC’s assessment of the employment allowance on a number of aspects, including the number of jobs created as a result of the allowance; take-up; the geographical locations of businesses that took it up; the number of charities and community amateur sports clubs that took it up; and its cost and the projected costs for future years. Let me explain why I do not believe that the new clause is necessary.
The tax information and impact note already commits the Government to keep the scheme under review through communication with taxpayers’ groups affected by the measure. As part of that review, HMRC, the Treasury and Ministers will speak to interested parties to gauge their views of the employment allowance and ascertain how it is being used. HMRC talked to various interested parties during the summer about the design and operation of the allowance in forums for software providers, charities and small and medium-sized enterprises. There is ongoing engagement between the Department and those groups on the guidance and the publicity, which will, of course, continue after the launch of the allowance next April.
There are, therefore, well-established lines of communication between HMRC and representative groups that will provide the basis for a continuous review of the allowance’s effect. I am sure that hon. Members will feed back to Ministers any concerns and thoughts on the allowance raised by businesses in their constituencies. The result of any such internal review will form part of the Treasury’s assessment of the allowance’s impact, and any decisions about its structure and value will be set out at future fiscal events in the normal way.

Nicholas Dakin: The Minister is spelling out clearly how ongoing consultation will work with businesses and other people directly involved in implementing the allowance, but I would be interested in his response to what Paul Johnson of the Institute for Fiscal Studies said when the scheme was first announced:
“Given that it won’t be piloted and will be almost impossible to evaluate the sad truth is we are likely never to know whether this will be money well spent.”
Surely the taxpayer has a right to know whether it is money well spent.

David Gauke: There is a good reason for us not piloting the scheme—we want to bring it into operation as quickly as possible. The hon. Gentleman nods, so I see he appreciates that and is not calling for us to pilot the scheme.
The additional cash that the employment allowance will provide for businesses and charities will be used in a number of ways: perhaps for higher wages, additional staff or reinvestment in a business. As I have said, and as the Federation of Small Businesses said in evidence and as is shown by its surveys, those are all valuable and good in themselves, but it might be difficult to assess exactly which different purpose the cash will be used for. My hon. Friend the Member for Enfield North made a good point earlier: a lot is going on in this area and a number of factors will determine what a business does, so identifying that information in relation to one particular allowance is difficult.
To make one point that might raise an area of difference between Government and Opposition, the view among those on the Government Benches—certainly among Members from my party—is that, if we can afford it, cutting taxes to put more money in the hands of small businesses is a good thing in itself. That view might not be universal, but we certainly hold it where we can afford to do so.

Valerie Vaz: Subsections (2)(b) and (c) of the new clause refer to take-up of the allowance and the geographical location of businesses taking it up. Does the Minister not agree that they contain eminently sensible propositions that go to the heart of transparency and fiscal responsibility?

David Gauke: I am drawing a distinction between how many jobs are created as a consequence of the employment allowance—it is difficult to assess that accurately, as a lot of factors come into play, but introducing the allowance will clearly help with job creation and wage increases—and the other areas that the hon. Lady has highlighted. Those are more factual points, and we can identify that type of information. I have no problem with that information being made available. As the hon. Member for Scunthorpe said, it can be provided through answers to parliamentary questions.
If it is helpful to the Committee, I have no problem with giving an undertaking that, in much the same way as we have done with other schemes, we will publish information about how many businesses have made use of the employment allowance, broken down by geographical location to the extent that we are able to do so—I suspect that will be by region—and put that information in the Library of the House of Commons. There is a legitimate desire to see what the take-up is and whether there are any particular geographical patterns, so publishing that information—let us say twice a year—is something we have no problem in doing, but there is a particular problem with including the new clause—assessing how many jobs are created as a result of the allowance, because of the inherent complexity in that matter.

Alan Reid: I assure my hon. Friend that it is not just the Conservative half of the coalition that wants to put more money in the hands of small businesses. The Liberal Democrat half of the coalition is equally supportive of that.

David Gauke: I am grateful to hear that the liberal tradition continues to be strong among the Liberal Democrats. I hope we see more of that.

Shabana Mahmood: I am grateful for the Minister’s indication that he is happy to publish a report on some of the information detailed in the new clause and to put it in the Library. I take his point in relation to jobs; he is making his argument about that at the moment. Is he saying that the information mentioned in paragraphs (b) to (e) of new clause 2(2) will be encompassed by what he hopes to publish or is he simply referring to take-up and geographical location, which are covered by paragraphs (b) and (c)?

David Gauke: I am happy to publish information on the take-up of the employment allowance. To the extent that we can do that geographically, I am also happy to do so. We are unable to provide information on the number of jobs created. On the number of charities and clubs taking up the allowance, I am not sure that we will be able to break the figure down in that way as it would not be easy to identify a distinction between businesses and charities. I am happy to consider that matter, but I do not want to make a commitment.
On the cost of the employment allowance to the Exchequer, together with projected costs for future years, the figures are already a matter of public record and were published at the time of the Budget in March 2013, having been certified by the Office for Budget Responsibility. The Budget policy costing document sets out the methodology behind all the measures. That was also introduced by this Government, which shows a commitment to transparency and sound public finances that we have never had before. Given that we can provide information on take-up, I will see what information can be provided on costings.
The hon. Member for Birmingham, Ladywood raised questions about take-up and a comparison was drawn with the employer’s NICs holiday. I was candid with the House on Second Reading in saying that the employer’s NICs holiday has benefited 26,000 employers and 90,000 employees; that is a significant sum. A number of people, as the hon. Lady acknowledged, pointed out the fact that the number was lower than we anticipated, and it is worth drawing some lessons from why that was the case. I would focus on the fact that anything that required an application process seemed to have an impact on take-up.
It is also worth running through the stages to be gone through before someone benefits from the employer’s NICs holiday. First, they needed to be aware of it. A lot was done to raise awareness—fliers providing information were sent to anybody registering for PAYE, for example—but a question clearly remains there. Secondly, it is necessary for the applicant to check that they are eligible. Thirdly, it is necessary to complete the form. Then there is an issue for HMRC in processing those forms.
One can criticise the employer’s NICs holiday that this Government introduced, but that process was also necessary for the policy that the Opposition advocated, which was targeted at small businesses. Again, there was a need to check that it applied to those businesses, and it was quite difficult to work out what constituted an additional employee, not least for HMRC in policing that, so if the Labour party wants to say that the previous scheme was flawed, it ought also to acknowledge that the scheme that it was advocating was flawed in much the same way. Therefore, something much simpler to operate that requires businesses just to click on a box as they use their ordinary payroll software and that does not require great consideration as to whether they are eligible is a much improved policy. That is why it has the support of both sides of the Committee. However, I want to make it clear that the policy is not the version that the Labour party advocated; it is newly designed and much simpler to operate, and therefore likely to have much higher take-up.

Shabana Mahmood: I want to take the Minister back to his point about the Government’s previous, regional NICs scheme and the counter-suggestion made by the official Opposition. I made this point to him on Second Reading as well. Our national insurance proposals were a refinement of the Government’s then scheme, and it was a case of trying to achieve the same objectives as the Government set out for their scheme while opening up that scheme. The key point is that our suggestions were national in application, as opposed to regional, which was a big difference. The regional application has been dropped, which is why we wholeheartedly support the employment allowance. I hope he will acknowledge that.

David Gauke: I acknowledge that Labour’s scheme was national, but that regional aspect was not the fundamental driver behind lower-than-anticipated take-up rates. Perhaps the lesson for Labour is that it should have thought more radically about how to address the matter, but there we go—an opportunity missed for the Labour party. This Government, I am pleased to say, have done that.
I should also touch on the particular issue in relation to charities. Again, because the process is so easy, there is no reason for it not to be easy for charities as well, but I assure the Committee that HMRC has been in discussions with charity groups and there is a specific section on the HMRC website for charities. HMRC will use that to signpost all the latest information and guidance on the employment allowance.
I have set out the case for the employment allowance and provided a little history. I could be drawn into discussing the point raised by my hon. Friend the Member for Bedford that, at the time of the general election, Labour was in favour of increasing employer’s NICs, but in the interest of saving time I will not do that.
Labour was also predicting, when the NICs holiday Bill was going through, that private sector employment was likely to fall and that unemployment would rise by 1 million, but we will not go into that, either. In the interest of saving time, I simply urge the hon. Member for Birmingham, Ladywood, in the light of what I have said, not to press the new clause to a Division and ask the Committee to support clause 1.

Shabana Mahmood: I, too, will not be drawn into discussing the Government’s predictions on how the deficit would be eliminated by the end of this Parliament and the fact that they will miss that target by at least five years. We will take the issue up another time.
I am grateful to the Minister for his indications on publishing some of the data envisaged in the new clause and hope that we can continue the discussion on jobs as the Bill progresses. I will perhaps look to return to that issue on Report, but for now I am happy to proceed.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Amber Rudd.)

Adjourned till this day at Two o’clock.